Which of the following policies addresses the problem posed by positive externalities?
A) a subsidy to the agent that generates the positive externality
B) a tax on the agent that generates the positive externality
C) limit the activity that generates the positive externality
D) a subsidy to the agents that benefit from the positive externality

Question

Quizplus · Accepted Answer

A subsidy to the agent that generates the positive externality would encourage them to increase their activity, leading to more positive externalities being generated. This helps to address the underproduction of the good or service that generates the positive externality by providing an incentive for the producer to produce more.

Which of the Following Policies Addresses the Problem Posed by Positive